Investment bank Numis Securities has downgraded its housebuilding forecasts, modifying its previously bullish predictions.

Numis said that because the housing market had slowed more quickly than expected, it now estimated that there would be a 2% deflation in prices next year. This compares with its previous forecast of no fall in prices for the same period.

Director Mark Hughes said: “For 2005 we do not subscribe to the view held by many that house price inflation will soften to a level where it is in line with wage inflation and general cost inflation of 4-5%.”

He said that although housebuilders were happy to admit that price inflation would slow and margins would fall, they were still predicting growth because most of them claimed they would simply increase output by 5-10%.

Hughes said: “With the market slowing at the rate we think it is, we do not believe that even if housebuilders bring all this potential unit growth through planning that they will be able to sell those homes without even more erosion and price deflation.”

We do not believe that firms will be able to sell extra homes with out more deflation

Mark Hughes, Numis director

Numis is expecting the housing sector to perform less buoyantly than originally predicted in the next six months, and has modified its sector stance to reflect this.

It has downgraded forecasts for companies including Barratt, Bellway, Berkeley, Persimmon, Redrow, Taylor Woodrow, Westbury, Wilson Bowden and George Wimpey. It said that it expected other analysts to follow suit in the next four months.